After giving up roughly 70 basis points this week, the long end of the municipal market rebounded Thursday amid a barrage of short-term issuance, including a $10 billion pricing of California notes and $1.1 billion of seven-year Texas unemployment bonds.
Traders said tax-exempt yields were anywhere from six to 10 basis points lower out 20 years and longer, while bonds with earlier maturities were unchanged.
“The market is kind of stabilizing,” a trader in Chicago said. “When deals start getting pulled, that’s a sign we’re approaching a bottom. And we may have hit one today in the near term.”
A Los Angeles trader noted that the market is still being overwhelmed by both retail and institutional bid-wanteds, as has been the case throughout the week.
“It seems to be settling down,” the Los Angeles trader said. “But we’re still seeing a lot of supply, especially here in California. We’ve got a lot of wood to chop. Several deals have been pulled, and that helps, but there are still a lot of people trying to [issue bonds].”
In the new-issue market Thursday, JPMorgan priced $10 billion of revenue anticipation notes for California in two series, the largest note issuance ever in the muni bond market.
The deal breaks the previous record for notes, which was set in October 2002 when California sold $9 billion of Rans, according to data from Thomson Reuters.
Notes from the $2.25 billion Series A-1 mature in May 2011, yielding 1.50% with a 3% coupon.
The $7.75 billion Ran Series A-2 matures in June 2011, yielding 1.75% with a 3% coupon.
The notes were originally scheduled to sell Wednesday. Pricing was delayed until Thursday so the issuer could disclose a lawsuit filed Tuesday.
The suit challenges a plan to sell and lease back from the private-entity owner 24 state buildings at 11 sites, according to the Treasurer’s office.
The delay also prompted the state to push back pricing its $3.275 billion taxable issuance to Friday. That sale, which the state expanded late Thursday and now includes $3.025 billion of taxable Build America Bonds, was originally set to price Thursday. The amount of the sale was increased from $2 billion Wednesday. It also includes a $250 million taxable GO.
During the three-day retail order period for the notes, California sold $6.06 billion, 60.6% of the total offering.
Of the notes maturing on May 25, 2011, $803.46 million were sold to retail, while $5.26 billion of debt maturing on June 28 of next year went to retail.
“Ten billion dollars in a market beating down issuers left and right — that’s some heavy lifting, and we got it done,” said Tom Dresslar, spokesman for state Treasurer Bill Lockyer, in a release. “Given the inhospitable market environment, the price is very good for taxpayers, and the 60%-plus retail demand is a solid achievement.”
The Rans are rated MIG-1 by Moody’s Investors Service, SP-1 by Standard & Poor’s, and F2 by Fitch Ratings. California’s long-term GO ratings stand at A1 from Moody’s and A-minus from Standard & Poor’s and Fitch.
In Thursday’s long-term new-issue market, Bank of America Merrill Lynch priced $1.12 billion of unemployment compensation obligation assessment revenue bonds for the Texas Public Financing Authority.
The bonds mature from 2011 through 2017, with yields ranging from 0.96% with a 3% coupon in 2012 to 2.63% with a 5% coupon in 2017.
The bonds, which are callable at par in 2016, are rated Aa1 by Moody’s, AAA by Standard & Poor’s, and AA-plus by Fitch.
The Municipal Market Data triple-A scale yield was unchanged Thursday at 3.01% in 10 years. The 20-year scale yield was also unchanged at 4.15%.
The MMD 30-year triple-A scale whipsawed down 12 basis points to 4.50% Thursday from a 15-month high of 4.62% Wednesday. The scale was 3.93% as recently as Nov. 5
Meanwhile, 20-year debt remained at its highest level since July 30, 2009, when it yielded 4.16%. The 10-year yield held steady at a seven-month high of 3.01%, according to MMD.
Thursday’s triple-A muni scale in 10 years was at 103.8% of comparable Treasuries and 30-year munis were at 105.1%, according to MMD.
Meanwhile, 30-year tax-exempt triple-A GO bonds were at 113.6% of the comparable London Interbank Offered Rate.
The Treasury market showed some losses Wednesday. The benchmark 10-year note was quoted near the end of the session at 2.90% after opening at 2.88%. The 30-year bond was quoted near the end of the session at 4.28%, after opening at 4.28%. The two-year note was quoted near the end of the session at 0.51% after opening at 0.48%.
In economic data released Thursday, the composite index of leading economic indicators met economist expectations in October by growing 0.5%..
Economists polled by Thomson Reuters predicted the LEI would be up 0.5% in the month.
Initial jobless claims edged up by 2,000 new filings to 439,000 the week ending Nov. 13, as the number of workers seeking continuing unemployment benefits broke below 4.3 million for the first time in two years. Continuing jobless claims fell for the fourth straight week, dropping to 4.295 million, the lowest level since November 2008.
Economists expected 440,000 initial jobless claims and 4.3 million continuing jobless claims.